Bank alters lending practices

By Jack King

A Clovis bank has agreed to reform some of its lending practices after accepting a cease and desist order from the Federal Deposit Insurance Corporation and the New Mexico Financial Institutions Division.
Joel Burdell, president of American Heritage Bank in Clovis, said the bank signed a consent agreement with the regulatory agencies on June 13 that outlined steps it would take to correct problems discovered in a regular examination of the bank in December 2002.
Burdell said the problems involve lending to customers with poor credit and that “95 percent” of the loans in question were for automobiles.
Burdell blamed the problems on a former assistant vice president who, he said, did not follow the bank’s lending and collections policies. The employee was terminated in January, Burdell said.
The former employee could not be located for comment.
Frank Gresock, a spokesman for the FDIC, said the agency does not comment on cease and desist orders involving specific banks. However, he cautioned against “leaping to conclusions” about a cease and desist order.
“A cease and desist order is the most common of a range of enforcement actions. We issue cease and desist orders monthly and terminate them monthly,” he said.
The cease and desist order requires the bank to stop several practices including: renewing or extending credit, which is inadequately secured; refinancing credits to borrowers in weak financial positions without improving collateral margins or establishing repayment programs; and renewing or extending the due dates of loans without collection in cash of interest due or obtaining adequate additional collateral.
It also charged the bank with having inadequate internal review policies or procedures.
The order requires American Heritage Bank to take several steps, including: increase its capital to no less than 9 percent of its adjusted average total assets; neither declare nor pay cash dividends to shareholders without the prior consent of the agencies’ directors, as long as the order stays in effect; develop plans for eliminating from its books loans classified as “loss” by the FDIC, and reducing all loans classified as “doubtful”; and implement effective written lending and collections policies.
Burdell said the bank has proper, written lending and collections policies and that its capital is greater than 9 percent of its assets. He called the amount of the consumer loan problem in relation to the bank’s capital “very manageable.”
“It originally was right at $4 million, about 5 percent of our loan portfolio. Since then, we’ve reduced it to a little over $2 million, less than 3.3 percent of the loan portfolio. There is no danger of the bank closing, no scheduled date, no ‘trigger’ for closing,” he said.
He said examiners from the state and the FDIC visited the bank in July and stated it was in compliance.
Dominic Bernardi, a senior program manager for banking and financial services at the University of New Mexico’s Anderson Schools of Management, said nothing in the order suggests the bank is about to close.
Board member Gordon Morris, of Melrose, said he feels the order is just a “bump in the road” for the bank.
“We feel we’re complying with the cease and desist order and that it will have a short term. We don’t expect it to affect the daily operation of the bank,” he said.